Nancy I. Stein-McCarthy on “Prejudgment Interest after Appraisal, a Modern Quandary on an Old Concept”

In her article appearing in the May/June 2010 issue of Coverage, “Prejudgment Interest after Appraisal, a Modern Quandary on an Old Concept,” Nancy I. Stein-McCarthy presents a case law surveyof when and if prejudgment interest should be awarded in the first-party property insurance context subsequent to entry of an appraisal award.The article reviews pertinent court decisions largely from Florida where this issue has been in flux, but also includes a multistate survey encompassing decisions in California, Connecticut, Florida, Ohio, Maryland and Mississippi.

The article first notes that prejudgment interest is widely accepted as an element of damages awardable to party who has suffered a loss from the time a cause of action accrues until the time of judgment. But this begs the question of when does the cause of action accrue. When parties to an insurance contract have an appraisal of the loss, it is because the insurance contract that both parties have agreed to has provided for it. The article reviews a line of decisions in Florida holding that in such instances, prejudgment interest should only be calculated from the time the party who suffered the loss receives an actual appraisal award (or a subsequent date as provided for in the insurance policy) as that is when the amount of the actual loss is determined.

However, the article further reviews a newer line of cases in Florida holding that where the insurer has denied coverage, it cannot rely on the policy terms deferring the payment for the loss.In these instances, prejudgment interest may accrue on the date of loss or a date subsequent such as the period of time after proof of loss has been submitted to the insurer.Turning to decisions in other jurisdictions as well as in Florida, the article finds that diverse guideposts and “competing interests” can be in play. For instance, “[T]he concepts that courts consistently affirm as important in any prejudgment interest determination, I.e., making the injured party whole for a right deprived, seem to lose their luster when, in essence, a penalty of interest is being awarded to a date often years prior to when the right became fixed.” The article concludes with tips for practitioners in confronting this issue where the determination often seems made more on the basis of the specific facts at issue than on adherence to principles of contract law.